Farmer optimism still high despite slight dip in Australian rural confidence - Rabobank

Rabobank has released its latest quarterly Rural Confidence Survey with results showing that Australian rural confidence has moderated slightly from last quarter’s three-year high, but remains at historically strong levels.

Favourable commodity prices together with top-up autumn rains are fuelling this confidence, which is the highest recorded for quarter two since 2001.

A comprehensive monitor of outlook and sentiment in Australian rural industries, the Rabobank Rural Confidence Survey questions approximately 1200 farmers across a wide range of commodities and geographical areas throughout Australia on a quarterly basis.

The latest survey, completed last month, found 42% of farmers expected conditions to improve in the coming year, 43% expected conditions to remain the same, and only 12% expected the agricultural economy to worsen

Rabobank General Manager Rural Australia, Peter Knoblanche, says farmers were cautiously optimistic about their prospects for the season ahead.

“While devastating to some, the extreme weather events earlier in the year also meant that farmers in many areas of the country received an abundance of rain in summer with an additional top-up in autumn. As a result, conditions could not be better for the start of the winter cropping season in much of the country,” he says.

“That said, as we are at the beginning of the season, farmers are still exercising caution in their outlook as more rain will be needed in the coming month to produce high yields,” he adds.

Commodity prices and seasonal conditions were shown to be major drivers of farmer optimism in the Rabobank Rural Confidence Survey. Of those primary producers who expected conditions to improve over the next 12 months, 61% cited rising commodity prices as a major contributing factor, while favourable seasonal conditions was also top of mind, cited by 48%.

“Shortage in supply, coupled with strong demand, is keeping commodity prices relatively firm for beef, sheep and grain,” says Knoblanche, who also noted that the rise of the Australian dollar against the US dollar is starting to cause some concern for exporters.

In terms of farmers’ own operations, the Rabobank Rural Confidence Survey found a slight improvement, with 53% of those surveyed expected to see improved performance in their business over the next 12 months. Overall, more than half of respondents expected to have higher incomes over the next 12 months.

Farmers’ investment intentions also improved this quarter with a total of 95% intended to maintain or increase the level of investment in their business.

In line with the national trend, the majority of the states have shown a weakening in sentiment compared to the previous quarter. Despite the decline, confidence remains high in New South Wales, Victoria, South Australia and Western Australia.

Western Australian farmers had remained relatively buoyant despite problems with ongoing drought conditions in parts of the state during the survey period. The state has since received widespread rainfall across cropping districts.

“Although farmer confidence is still comparatively high in WA, it is important to note that a significant area of the central wheat belt had been battling very dry conditions going into planting. Fortunately, there was some much-needed rain in late May, but much more will be required,” says Knoblanche.

Sentiment in Queensland and Tasmania has bucked the national trend, registering an improvement this quarter, although Queensland farmer confidence remains the weakest in the nation as they begin to recover from the devestatio of the floods and cyclone.

Results of the Rabobank Rural Confidence Survey show sentiment is highest in the cotton, sheep and dairy sectors, with cotton producers the most confident in the nation.

Knoblanche says this year’s record cotton crop yield had seen a strong underlying confidence in the sector re-emerge, as many producers showed the returns this sector can generate with water availability. This rise in confidence was despite front-month cotton futures falling by 11% during April, the largest monthly slide in 25 years.

“Prices for cotton are still well above the 20-year average and strong demand growth, along with good water availability, means the outlook for producers is positive,” he says.

Sugar producers reported the lowest confidence of all farmers this survey, but sentiment in this sector had improved from the previous quarter.

The most robust study of its type in Australia, the Rabobank Rural Confidence Survey has been conducted since 2000 by an independent research organisation interviewing an average of 1200 farmers throughout the country each quarter. The next results are scheduled for release in September 2011.